On Our Radar

On Our Radar

Why Exact Sciences Shares Rallied 10.2% in August

What happened

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After the company reported better-than-expected top- and bottom-line second-quarter results in late July and updated investors on its strategy at Cannacord's 37th annual growth conference on Aug. 9, shares of Exact Sciences(NASDAQ: EXAS) jumped 10.2% last month, according to S&P Global Market Intelligence.

So what

Guidelines call for everyone between ages 50 to 74 to be on a colon cancer screening "schedule," yet millions of Americans are failing to follow through on being tested, and as a result, more cases of late-stage colon cancer are being diagnosed than there should be.

The gold standard for colon cancer screening is a colonoscopy. However, colonoscopies can be expensive and they require fasting and the use of strong laxatives beforehand.

Unlike a colonoscopy, Exact Sciences' colon cancer screening kit -- Cologuard -- is easy to use. Patients ship a stool sample from the comfort of their own home to Exact Sciences' lab for evaluation. Insurers are increasingly paying for Cologuard, so it can be less expensive than a colonoscopy, too.

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These advantages are resonating with patients, and that's driving significant top-line growth for Exact Sciences. In the second quarter, the company completed 149% more tests than it did in the same quarter of 2016, and as a result, sales swelled to $57.6 million from $21.2 million last year.

Although Exact Sciences is still losing money because of its substantial spending on marketing, losses are decreasing, and that may mean it's on a path to profitability. In the first six months of 2017, it spent $75 million on sales and marketing expenses and its net loss was $66 million. Last year, its net loss through the first half was $93 million.

Now what

Colon cancer remains the second most deadly cancer in America, and changing that is going to require more baby boomers get screened. Cologuard isn't a substitute for a colonoscopy, but it is establishing itself as an important testing option for patients who would otherwise skip a colonoscopy.

Following its strong second-quarter results, Exact Sciences estimates it will complete 550,000 tests and deliver sales of between $230 million to $240 million. That forecast is significantly higher than its prior outlook for 470,000 tests and sales of between $195 to $205 million.

The million-dollar question is: "When will there be earnings?" The company hasn't said when it could turn a profit, but it estimates that the market for screening is worth $14 billion. Based on the size of its addressable market, it would seem that earnings are only a matter of time.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.